Comstock Inc. (LODE) Q3 2021 Earnings Call Transcript

Good morning everyone and thank you for joining our Zoom call today. I'm very enthusiastic about this update. We have seen a significant amount of activity over the past six months, and I will provide a brief summary of the information in our press release from this morning and from our quarterly report filed last night. This will include our advancements in lithium-ion battery recycling, lithium extraction, and cellulosic extraction for biofuels, as well as an update on our mercury remediation operations in the Philippines and developments with Tonogold. I’ll keep my prepared remarks brief and look forward to the Q&A session. If you haven't already, you can find a copy of today’s press release on our website at www.comstockmining.com under the Press Release tab. Our Form 10-Q is also available on EDGAR at www.sec.gov. I want to remind you that forward-looking statements will be made during this call, relating to prototype deployments of our technologies and their impact on future revenues. These statements are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in previous reports filed with the SEC and in today's press release. All forward-looking statements discussed today are subject to those risks. After my remarks, Zach will facilitate the questions, and I'll be happy to answer them. If you're not on Zoom, feel free to follow up with us after the call or through our website with any additional questions. We have been quite active this year in building our asset portfolio and assembling an outstanding senior management team. Our balance sheet has grown to $100 million in net assets, tripling from last year, and importantly, we've added lithium extraction, cellulosic carbon fuel extraction, and global engineering and manufacturing capabilities, putting us in a strong position in each of our sectors. We have also increased insider ownership to over 20%, aligning our team’s interests with those of our shareholders. It’s not the size of our assets that matters, but how we utilize them. Over the last six months, we’ve been accelerating our plans for lithium recycling and cellulosic fuels, with operational capabilities coming online and prototypes planned for the first and second quarters of 2022. I’ll provide insights into each of these areas, highlighting exciting revenue and profit opportunities that are developing quickly in 2022. Starting with lithium-ion battery metal recycling, our engineering team has designed and is now implementing a crushing and separating technology, which will lead to a state-of-the-art battery metal recycling facility in the Tahoe-Reno Industrial Center in Nevada. We believe we have developed the only system capable of safely crushing charged batteries without needing to discharge them first, allowing us to extract lithium and other minerals while producing the highest purity black mass. This system is expected to be operational in Nevada by Q2 2022, with a prototype arriving in our PSI labs in Wisconsin next month. This fully integrated system can crush six tons per day and demonstrate our unique technology, which we believe will yield the highest purity dry black mass in just a few months, setting us apart in the market. Importantly, we are integrating our supercritical intellectual property to extract lithium from the black mass, with that technology set to arrive in March in Wisconsin. This will enable a very profitable business at both low and high volumes, as we can sell lithium carbonate later this year thanks to this capability. This technology is a significant breakthrough, as many current market processes destroy the lithium content during recycling. We also expect to extract graphite at the front end of this process, further purifying the concentrated black mass. While we are not as advanced with graphite extraction as we are with lithium, we are confident in our ability to implement it. This will enhance the value and quality of the black mass. Additionally, we have positioned ourselves to collaborate with Green Li-ion and Aqua Metals to use this highly pure material for developing clean, high-quality metals such as cobalt and nickel. This strengthens our product line potential, which will include various materials including lithium, graphite, nickel, cobalt, and manganese, and eventually realigned co-precipitated cathode materials. I believe we are uniquely positioned in the battery metal recycling space. We have also secured almost 200 acres for battery storage near the LiNiCo facility, allowing us to finalize agreements and begin receiving and storing lithium-ion battery materials in Nevada. We are already collecting materials in Wisconsin for our prototype. This is an important step as we pursue our plans, and we remain dedicated to this goal. In regard to lithium battery recycling, we anticipate showcasing our crushing and separating process in Q1 and our lithium extraction capabilities in Q2. This will be a crucial milestone for tracking our business progress. Next, I want to discuss cellulosic fuels. I appreciate that this is a new topic for us, especially since we just acquired Plain Sight Innovations less than two months ago. We now have our first target for a biofuel facility and plan to scale with an initial capacity of over 330,000 tons per year of forestry waste in its early years, transforming this into ethanol, biodiesels, and marine fuels. This segment is poised to become the largest within our portfolio. I have devoted a considerable amount of time to it over the last 90 days, and its market potential is vast, even bigger than LiNiCo’s. Our carbon-neutral biofuel designs are incredibly scalable. We can create facilities ranging from 16 million to 100 million gallons per year. We have achieved a breakthrough in extraction speed, tripling the rate at which we convert woody biomass into cellulose and ethanol. For every gallon of ethanol produced, we can yield 0.5 gallons of alternative biofuels from lignin, such as biodiesel or marine fuels. Thus, a 16 million gallon facility could produce 24 million gallons of sellable products. This advancement is being applied to the design of our first facility in Minnesota, where the feedstock is abundant, cost-effective, and has a significant decarbonization impact. We have identified a potential market of 16 billion gallons of cellulosic fuel per year, with no current providers. Additionally, we have been approached by two major counterparties seeking our engineering and construction services for deployment of the same technology for paper products and ethanol production, which will generate significant revenue for Comstock. More developments in clean technology-based sales and services are anticipated in early 2022, thanks to the acquisition of Plain Sight Innovations and its engineering capabilities. We will showcase the lithium extraction technology in Wisconsin next quarter, and we will also demonstrate our capabilities in woody biomass extraction. We are close to integrating all these businesses into one cohesive Comstock entity. Over the last six months, we have been working towards this goal, hence our recent silence. Now, regarding our mining activities, specifically with MCU and Comstock: MCU experienced a delay due to the need for additional permits to sell sand and gravel. While we were able to set up operations and hire equipment, we lacked the permission to sell products, leading to a downtime from April to August. Our joint venture has since secured that permit and operations have resumed. We are processing materials and beginning to sell sand and gravel. The government has assured us daily testing of the mercury content, which has shown minimal levels, allowing us to sell our materials. We are also testing upstream, anticipating more mercury and gold content due to historical artisanal mining activity, which could develop a significant revenue stream. As for Comstock and Tonogold, Tonogold is undergoing transitions that will strengthen its mining and leadership teams, with substantial capital commitments. They are drafting a technical report for the northern district, which we are reviewing, including for the Lucerne Mine. We expect everything to be back on track and possibly exceed our original expectations by year-end. We are progressing with our technical reporting for the Dayton and Spring Valley complex, utilizing dedicated geologists, and look forward to seeing our reports, especially as gold prices have surged recently. These updates are crucial indicators of our assets' gold and silver value. In summary, our investments and commitments are closely tied to our mining endeavors, aiming for a considerable increase in shareholder value. We are assessing these values as each business potentially exceeds our previous targets. Given our significant insider ownership and performance-based compensation structure, we are all aligned for success. I welcome any questions regarding our activities. I will now turn it over to Zach to begin the Q&A session.

All right. Thank you Corrado. Our first question is, there seems to be other firms working on lithium extraction in the Nevada area as well and probably recycling too. They seem to be trying to source used batteries at this time. How does Comstock compare in the time to significant commercialization? Other than timing, what other differentiating factors are there relative to these competitors?

Outstanding. Thanks Zach. So in terms of differentiation let me say, first, that we have a fully state-of-the-art 136,000-square-foot battery recycling facility. As far as we understand it, we're the most advanced in terms of the existing facilities that are on the ground and the permit applications that have been submitted, number one. Number two, we don't see anybody in the industry looking to crush materials that are charged and in a dry state. That results in the purest least contaminated black mass with the highest value of minerals residual including lithium. Thirdly, we have the ability to extract lithium almost instantaneously using our supercritical intellectual property and process at the very front end of the process. We don't believe anyone is even talking about extracting lithium at the front end of the process. Most of the processes are designed to produce minerals such as cobalt, such as nickel, such as manganese with meaningful losses in lithium and graphite. Our ability to extract lithium and hopefully, graphite at the front end of the process totally differentiates us, not just in terms of process but in terms of value in the market. What it also enables and this is very important is a profitable endeavor, even with very low volumes of lithium-ion batteries. There is no expert in the market that is predicting anything other than a tsunami of lithium-ion batteries coming out of the market. It's obvious. What's not as obvious is the timing, right? The tsunami is not coming in 2022 or 2023. It's coming much later but it's coming. If you have the ability to produce a relatively low amount of battery feedstock profitably enabled by extracting lithium in our case then you have a sustainable business that's going to explode at some point. If you talk to any of the experts, McKinsey, the mineral industry as a whole, the associations, the explosion is coming and we're going to be best positioned for it.

All right. Thank you, Corrado. Our next question is about RCRA, whereas we refer to it RCRA and of course that stands for Resource Conservation and Recovery Act, which was enacted in 1976. The question is, do you have confidence to meet RCRA's timelines in your battery recycling operation? Is your storage site RCRA-approved?

Excellent question. So RCRA is the leading authority for hazardous waste management. And here in Nevada, the permitting process for processing hazardous materials is done through the Nevada Department Environmental Protection using a permit called the written determination. And the determination is that we're allowed to operate under RCRA guidelines as long as we don't store the batteries on site. So a very important distinction. None of the recyclers are going to store batteries on site. It's not allowed. In that context, we are highly confident that we will have all the authorities and permits by the first quarter of next year and that we'll be up and operating on the timeline that we indicated. Secondly, with storage, we're allowed to store lithium-ion batteries up to one year at a dedicated storage site. We just secured a 200-acre site in very immediate proximity of our operating facility. And all that really requires since we're not processing materials there is a record ID. So it's relatively permit-light. And that is different than if you had a fully permitted universal large-quantity waste recycling facility that would require full RCRA permitting, which often takes many years. I hope that answers the question.

Okay. Thanks, Corrado. The next question is for each of your new businesses, could you reiterate a brief commercialization map that is date of first commercial activity and plan?

Yes. Let me give that. So for lithium, we are going to have a prototype operating in Wisconsin in January. We're going to have lithium extraction added on to that prototype in March, April time frame. That will produce sample quantities of the material but also provide a showcase to the market of our full capability through lithium extraction. Immediately following that, we will have the crushing and separating system coming online in Nevada. That is the May, June time frame. And then we'll have saleable materials coming from that. Following the lithium extraction will be added on in the most likely early fourth quarter or fourth quarter of 2022, of which then we will have lithium extraction revenues and at a very low volume projecting profitability. So that's number one. Cellulosic fuels is very interesting. We will similarly have a full cellulosic extraction prototype up and running in Wisconsin in the March, April time frame. We have already started and scheduled our first facility, which would be scheduled to come online in 2023 in Minnesota. The breakthrough that we had in processing time has resulted in us reengineering, updating if you will, the engineering of that facility for much, much higher throughputs which I cannot - it's the most exciting thing that's happened for the company in the last six months. It's remarkable. However, there's an accelerator happening here. We've been approached by very recognizable companies to purchase engineering and manufacturing services and equipment to use the same cellulosic extraction technology for pulp and paper. And we expect revenue, meaningful revenue, tens of millions of revenue in 2022 from this and even recently approached by a different counterparty for a much, much bigger project using the same technology. Once we can show in this concept this cellulosic fuel capability, it would be shocking if every major petroleum producer and every large user of these fuels who have stated carbon targets by 2025 and 2030, it would be shocking if they weren't lining up, if you will, to use this technology to meet their carbon goals. So we have an opportunity to create a huge cash-producing business of our own. We own 100% of the company, we own 100% of the technology. And we have the ability to accelerate decarbonization in these transportation industries across a wide spectrum of huge companies by selling our engineering and manufacturing services to them as well. The services themselves are hugely profitable, but there's also opportunities to profit share, royalty share, cash share beyond that. And so, we're just building those models now and we'll have a lot of discussion about that in the first quarter of 2022.

Okay.

Zach let me say one more thing. With MCU we're up and running. We are selling materials. We did produce some gold. It’s very, very small okay? The important part there is the concepts we improved and the operation being established. No fatal flaw. We're moving forward. Once we start seeing more revenue from gold, gold containing mercury, mercury containing gold, we'll provide better guidance on that. But there clearly will be revenue every quarter here as we go forward. It's just a question of when it gets to the meaningful level, then we'll all care more about the kind of positive track there.

Okay yes. Thanks for that update on MCU. There was a question about that. The next question is how much capital will be required to implement your growth plan for the next three years?

The capital requirement is an important topic. We have been deliberate in how we capitalize these activities. A significant portion of the capital has already been deployed, having invested over $5 million in cash this year and more than $7 million through provided stock. LiNiCo is funded at least until the first half of next year, and it's crucial for us to showcase our capabilities in the first quarter of next year. There should be no barriers to debt financing these projects based on the cash flows they are expected to produce, which we are very excited about. Our work with cellulosic fuels receives substantial government support, and there's considerable talk about the infrastructure plan along with significant mineral and material subsidies available for carbon neutrality. We are at the forefront of impactful technologies with excellent access to these funds. Recently, I spent a day in Las Vegas with Senator Masto, a key supporter of mineral extraction subsidies in Nevada, and both she and we are very enthusiastic about our position. In Minnesota, we are also receiving interest-free loans, grants, and subsidies to establish operations, partly due to our carbon-neutral focus and the forestry industry's challenges. The forestry sector produces a large amount of waste wood yearly, which negatively impacts the carbon footprint. By converting this dead wood into pure cellulosic, carbon-neutral fuel, we can potentially demonstrate carbon-negative results. Importantly, the cash flow profiles of these projects can also support debt financing. Additionally, we have proposals for revenue ranging from $50 million to $165 million, with profits between $10 million and $40 million that do not require capital. This involves providing engineering, manufacturing, and construction services to implement these decarbonization technologies in non-competing industries, which will be a significant story for us in 2022 and for Comstock. Conversations and proposals are in progress, and though we are not yet ready to announce definite agreements, they are on the way. The potential for this could form an entire business without capital requirements, leading to remarkable returns. I recognize this is a new discussion that we have focused on for 18 months since our engagement with Plain Sight Innovations when David Winsness, our Chief Technology Officer, first demonstrated this technology to us. We have made initial loans, proceeded with our acquisition, and have conducted detailed planning over the last 60 to 90 days. Things are moving quickly, and we will be operating at a different pace moving forward. Thank you for your patience as we discuss this new frontier.

Corrado based on your answer to that question, you actually answered quite a few questions that we have in the queue. So pivoting just a little, the next question is, can you please provide an update on the sale of non-core assets?

Absolutely. So the activities in Silver Spring are very dramatic like, they're picking up. We've just had announcements of nanotech and graphein companies coming into Storey County Tahoe-Reno Industrial Center, and the exciting businesses exciting technologies. We've gotten major retail companies taking Cornerstone properties in Silver Springs; convenience stores, of which you would recognize the names immediately; hotels which you recognize the names immediately. We had – and we in Springs opportunity funds, specifically was approached by an internationally recognized company to buy an orphan parcel on the other side of Highway 50, which we had no plans for – for almost $9 million. So we're seeing a tremendous amount of economic surge. We're seeing companies coming in and submitting permits and expansions in the area. We're seeing new technologies and new companies flowing in. And we are now much more actively engaged with – and when I say we now in the Sierra Springs, which Comstock is an investor in is getting an increased amount of activities for investors. And with the dynamics changed it's going from relatively small high net worth people, looking to intelligently roll capital gains into an incredible value opportunity to sophisticated real estate developers, sophisticated companies that are looking to invest in a much, much larger way. And so we expect, all of that will result in closing the sale of our two properties for over $10 million of proceeds, within the next few months. This has been a longer story than we originally expected. But when we look back and we see the growth curve and the development curve in northern Nevada and in Silver Springs, we can say, unquestionably that the growth and the inflow and the thesis is significantly stronger and even faster than we were expecting to see. But fast was a relative term. There's a lot of infrastructure the 4 million expansion of Highway 50, all through the Silver Springs properties just got completed. The brand-new second roundabout just got completed. The intersection of the USA Parkway to the now expanded Super Highway 50, all just getting connected. So it's happening remarkably. We're just being patient and hopefully, it will be done within the next two or three months but it will certainly be done. It's just coming that strongly. Those are the cores of our asset sales. We're monetizing the rest of our total stock. That will happen in due course, especially with some of the good changes that they're about to announce. And then the ranch is already contracted sale expected to close next May. So within the next seven or eight months, we should expect to see all that cleaned up and fully behind us, which provides remarkable funding for us to complement the last question that came up in terms of our new initiatives.

Transitioning from non-core assets to the management team, please provide information on your new President and CFO, as well as the other members of the management team.

Absolutely. This acquisition is one of the hidden jewels in our series of completed acquisitions. With the acquisition of Plain Sight Innovations, we brought on Kevin Kreisler as Comstock's President and Chief Financial Officer. Kevin has extensive experience in hazardous waste management, recycling, solution extraction, and clean technology, and he plays a crucial role in the decarbonization efforts that Plain Sight Innovations will support. We also welcomed David Winsness, the former CEO of Plain Sight, who is a leading technologist in cellulosic fuel development. Our research and development lab in Wisconsin, which is equipped with full-scale prototype capabilities, is about to be expanded. The development capability we possess is noteworthy in terms of intellectual property. Importantly, this will enable us to demonstrate our capabilities to the world, to capital markets, and to our customers, becoming the key driver of our future sales. Following that, we acquired Renewable Process Solutions, and Rahul Bobbili took on the role of Chief Process Engineer. Over the past 15 years, Rahul has engineered and designed 21 ethanol facilities, managing all aspects of the equipment manufacturing and commissioning. The combination of David's innovation with our engineering expertise gives us a strong ability to construct our own facilities and businesses more efficiently and at much lower capital costs than anyone else in the industry. For instance, we successfully delivered a crushing and separating system for LiNiCo for just over $6 million, significantly less than the $9 million originally estimated and in half the time, with better capabilities. This just scratches the surface of what we can achieve, which will soon be evident in new sales driven by our technology and engineering prowess. Additionally, we acquired MANA, and Billy McCarthy is now our Chief Operating Officer, overseeing all our projects and schedules. We manage the company through a coordinated system of approved projects. As we move forward, you will hear less about individual entities like PSI or RPS and more about Comstock as a cohesive unit delivering comprehensive solutions. Our core strength lies in our supercritical extraction process. I was pleasantly surprised when we acquired a supercritical extraction method for converting dead wood into biofuels, and immediately David and Rahul pointed out we could extract lithium from black mass using the same technique. Incredible! We also have a solid support team managing various business processes, project management, sales, and marketing, consisting of more than a dozen skilled individuals beyond our executive team. This is not a one-man operation anymore. I'm very enthusiastic about the alignment and confidence of our team. I hope I haven't rambled too much, but I wanted to emphasize our progress.

No. We've had several questions about that, so that was perfect. That's what people were looking for. And now, pivoting to the mining properties, the southern Comstock properties in our portfolio, can you please provide an update on the Consolidated and Spring Valley?

We have two significant updates to share. Our team has been diligently working on finalizing the new resource model for the Dayton-Spring Valley Complex, which will lead to a second technical report. One report will be prepared by Tonogold for the northern area, while Comstock will handle the southern part. We are currently in the process of engineering that resource model. Our junior geologist has transitioned to other responsibilities after completing his tasks on schedule. The delay we've experienced is not due to any setbacks but rather the extensive integration work within the company over the past five to six months. Mike Norred, our Chief Mining Engineer, has been engaged in various strategic initiatives, which has resulted in a postponement for the Dayton resource. However, we are looking forward to publishing it, as it will be very validating for us. The progress towards our target of 1,900 is on track. Additionally, we have acquired 200 acres for lithium battery production, located next to the Dayton-Spring Valley Complex, enhancing our potential in the southern part of our district. This property also contains an estimated 12 million tons of aggregate material available for extraction, making it a versatile asset. We expect to finalize this acquisition before year-end. While it may not be ideal for battery storage, it significantly expands our capabilities in the area. Our commitment to Comstock has never been stronger, and we are putting the final pieces in place. This development presents a highly valuable district opportunity that will increase further with the forthcoming technical reports and rising gold and silver prices amidst the current fiscal environment.

The next question is a question looking for any update that you can provide on GenMat.

Sure. I wasn't planning to discuss GenMat much since it's somewhat a discreet operation. We have invested or will invest $5 million in cash by the end of this year. In a couple of years, we will look back and be amazed at what we have achieved. We are at the forefront of material science. GenMat focuses on quantum computing and quantum sensing technologies that will revolutionize material science and engineering in the future. We are building an artificial intelligence capability to solve complex quantum mechanical equations essential for discovering breakthrough materials. GenMat has strategic partnerships with leading quantum computing companies and operates on their level. The talent we are bringing on board is exceptional compared to standard technological talent. The company's primary focus is on breakthrough materials and quantum sensing in mining, new material discovery for batteries, carbon capture and utilization, and aerospace applications. We will likely organize a dedicated call where you can meet the leadership and teams, who are among the smartest people in the field. While we are achieving significant breakthroughs in materials and engineering, including cellulosic fuel extraction, that will be a key focus in the upcoming months and years. However, GenMat takes us to another level in this journey.

Corrado, I believe you addressed this in several of your earlier comments, but several people are asking will there be a need to raise cash from any stock offerings next year?

So, look we're always sensitive to the dilution. We are very, very careful with our equity. I couple that with saying that we've been very aggressive right in the acquisitions that we've made. But if you peel the onion on how we've done it, right, we've created a world-class leadership team with a world-class portfolio of technologies all that are commercial-ready and that we're commercializing as we speak with insider ownership exceeding 20%. And will we need to use equity at some of the early stages of some of these developments? We will need to use some equity. Because of their cash-generating nature, it should be significantly less. Because of our ability to sell products, meaning engineering and manufacturing services, it would be none because we're able to sell these non-core assets, it will be minimized. So, the answer is yes, but in an incredibly capital-sensitive way with huge appreciation models tied to the use of that capital. There was a legacy of having to use equity just to cover operating expenses. That was years ago, okay. It's not what we're talking about here. We're deploying capital into huge exponential growth markets, which I didn't overstate but let me surely state now, we're going to be the leading decarbonizer, like we may be the leading global decarbonizer. The amount of carbon that we are stemming, the amount of carbon that we're reducing and in a little while, we're going to have a very exciting conversation about the amount of cars we're actually taking out of the environment and converting into solid carbon products and graphite is going to lead the world. The capital markets are now laser-focused on these investments. The government has prioritized these initiatives as the single most important thing. And every major fossil fuel using a carbon horrible enterprise is clamoring to get this technology, clamoring to meet targets that they set for 2025, 2030, 2040. They can't conceivably meet. We have the technology to do all of that. So that's where we are positioning ourselves. It's where we have positioned ourselves and we're commercializing into.

We're getting near the top of the hour so we have one final question. It seems like you are acquiring and building a strong portfolio of intellectual property. Excluding the human capital such as people, how are you protecting this property vis-à-vis patents, et cetera? And will it be a license to others?

Could you repeat the question?

Yeah, okay. It seems like you are acquiring and building a strong portfolio of intellectual property. Excluding the human capital such as people, how are you protecting this property vis-à-vis patents, et cetera? And will it be licensed to others?

We have a very aggressive approach to IP protection that we inherited from our acquisition of Plain Sight Innovations, where Kevin does an exceptional job at it. Our strategy focuses on filing patents and safeguarding our technology. Our in-house capabilities are strong, particularly with Mike Maybelle, one of our Chief Scientists, who excels at researching, evaluating, compiling, and filing patents. It's rare for a company of our size to have such internal resources. We recently filed a patent for a breakthrough in Wisconsin where we can extract biographite from deadwood, which could significantly impact the carbon graphite industry if we can produce it naturally. Ideally, we want to achieve the next step of producing carbon graphite from carbon dioxide. These innovations are transformative, and we intend to patent, protect, and license them when appropriate. Our mission is to decarbonize and accelerate that process while generating revenue. The great thing about our system is that reducing carbon also leads to profit. This new approach sets us apart from others, emphasizing that our work in decarbonization aligns directly with our revenue generation. We’re committed to licensing our technology to speed up global decarbonization, especially if it helps us earn more. We've tackled the significant conflict between doing good and making a profit. As we continue to integrate our recent acquisitions and establish our identity as Comstock Inc., we are excited about the direction we're headed and the potential for partnerships.

Thank you Corrado. And also, we would like to thank all of the participants who Zoomed in today and thank you for all of your questions. And I'll turn it back to you Corrado to close this out.

I want to thank everyone for your interest. Our main focus is on consolidating here at Comstock. We will have much more to share, with greater frequency and clarity in our communication. We're in the process of launching a new website, which has already been built. I've seen it, and it's impressive. I appreciate our long-standing shareholder base that values Comstock and precious metals. I recognize that we are custodians of these assets, which will only grow in value. I regret that we have not been able to discuss GenMat more, but we are focused on it. More updates will be shared soon, and I look forward to it. Thank you all.